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Dutch state maintains index-linked bonds line

NETHERLANDS - The Dutch Finance minister Wouter Bos he has reiterated he is not considering the issuance of index-linked bonds.

"Because of the limited compensation they generate, the interest of pension funds for index-linked bonds is very limited to nil," Bos said in a response to questions from Simon van Driel, senator for labour party PvdA.

"Index-linked bonds mean that the Dutch state will take over the inflation risk, while it has very limited grip on inflation," the minister pointed out.

"The independent ECB is tasked with keeping inflation under control, and is effective in doing so," he added.

Moreover, a survey of the Netherlands' Bureau for Economic Policy Analysis (CPB) found that index-linked bonds don't help stabilize the EMU balance, Bos indicated.

"France, for example, has issued index-linked bonds, but acknowledges that it is an implicit subsidy, which is justified with the argument that it promotes Paris as a financial centre," Bos said.

Two years ago, The Dutch State Treasury Agency made already clear that it was not going to issue index-linked bonds in the near future.

Index-linked bonds are not attractive as an instrument for state financing, because they might increase the effect of inflation on the budget, instead of neutralising it, the agency explained at the time.

"The movement of interest payments are more than proportional than inflation. A rise of inflation of 1% will cause a rise in interest payments of 5%," it added.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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